Draw an IS-LM model in general equilibrium. Show the effect of expan-sionary monetary policy, and then explain and show what adjustment will happen in the long run. Explain the trade-off for this policy in the Keynesianversion and the counterargument from the classical version.

Assuming that the monetary authorities hold the money supply constant, explain whythe decrease in government spending reduces output more in the Keynesian-crossmodel than in the IS-LM model.

Suppose that government spending is increased at thesame time that an autonomous monetary policy tightening occurs. What will happen to the position of theaggregate demand curve?

Suppose the current monetary policy is r = 1.0 + 0.75π, and the IS curve is given by Y = 13 - r. Calculate the numerical value for (Y) aggregate output when inflation equals 4%. Do not use chatGPT.

Within the Dornbusch Sticky Price Monetary Model (SPMM) explain the short run and long run impact of a 10% decrease in the domestic money supply at time tl, after an initial equilibrium, using the dynamics of relevant macro-variables. What happens to domestic prices, interest rates and the spot rate over time? Explain using the money market and purchasing power parity why these macro variables respond the way they do to this exogenous monetary shock, according to this model. Supply relevant graphs. Be clear whether there is a domestic currency appreciation or depreciation.

Expansionary monetary policy in Europe: Suppose the European Central Bankdecides to stimulate the European economy by reducing interest rates there.Use the AS/AD model to explain how and why this afects the U.S. economyin the short run. How does the economy return to steady state?

Suppose the economy is initially at full employment. Suppose further that in period 1 households experience an increase in their subjective discount factor from β to β′ > β. This type of shock is known as a natural rate shock. Characterize graphically the effect in period 1 on consumption of non-tradables, unemployment, the relative price of non-tradables, and the real wage measured in units of tradable goods under two alternative monetary policy regimes: A. A fixed exchange rate regime. B. A floating exchange rate regime in which the central bank pursues full employment and price stability.

What is rational expectation? Explain why rational expectation impliesa steeper short run aggregate supply curve. Using this to evaluate theeffectiveness of this expansionary monetary policy in tackling therecession

Consider the AD-AS model discussed during the lectures. Assume that the aggregate demand curve is given by Y=8-0.5 π, that the long run aggregate supply curve is given by Yp=7, that the short run aggregate supply curve is given by π = π_expect + 0.3(Y-Yp), and that the monetary rule is given byr=1+0.3 π. Suppose the economy is suffering a decrease in the potential level of output, due to some ill-designed new regulation. According to the AD- AS model, what is more suitable to offset the subsequent decline in output, an expansionary monetary policy or an expansionary fiscal policy?

A fiscal expansion coupled with a monetary expansion must always causea) Output to riseb) Output to fallc) Interest rates to rised) Interest rates to fall